CANBERRA OBSERVED China FTA: more about diplomacy than trade

At the time of writing, the Prime Minister, Tony Abbott, and China’s President Xi Jinping are expected to sign a free trade agreement (FTA) during the G20 meeting in Brisbane.

Negotiations for such an agreement follow Australia’s earlier agreements with Japan and South Korea, which are trade competitors of China.

Earlier trade negotiations conducted by the Gillard Labor government were abandoned when no agreement could be reached on improving access to China for Australian agricultural exports, including wheat, dairy products, meat and wine, and on China’s insistence on lifting the threshold for foreign investment to $1 billion.

It will be very interesting to see whether the forthcoming agreement, which has been negotiated in secret, deals with these issues, and addresses deep concerns in Australia about Chinese acquisition of Australian residential property and farm land.

The history of these agreements does not fill one with much confidence.

Last April, Australia signed an FTA with Japan, which was hailed by Trade Minister Andrew Robb as “historic” and “marvellous”, and which Tony Abbott characterised as “good for Australia, good for Japan, good for the region and good for the world”.

In fact, of the five areas in which Japanese protection has been extreme — dairy, beef, pork, sugar and rice — the Japanese negotiators have made concessions in only one area, beef exports, where Australia was already a major player.

The Japanese concessions were actually quite modest. Tokyo agreed to reduce export tariffs on frozen beef from 38.5 per cent to 30.5 per cent immediately; by a further one per cent a year over the next three years; then by 8.5 per cent over the following 12 years. Smaller reductions will apply to fresh or chilled beef exports.

The Australian dairy industry described it as a “dud deal”, and the president of the Ricegrowers Association of Australia said he was “extremely disappointed” that there was no liberalisation of rice imports into Japan.

Pork producers expressed similar sentiments.

Despite government claims that the FTA with Japan would lead to a major expansion of Australia’s sugar exports, the sugar-producers’ peak body, Canegrowers, said Australia’s sugarcane farmers felt they had been “hung out to dry”.

“There’s been no improvement in market access for sugar, no improvement in terms of trade, and no commercial gains for Australia’s export-driven sugar industry,” Canegrowers’ CEO, Brendan Stewart, said.

On the other hand, Australia immediately scrapped the low 5 per cent tariff on imports of Japanese electronic and household goods, and most Japanese motor vehicles.

The Thailand-Australia FTA (TAFTA), negotiated by the Howard government, commenced operation on January 1, 2005. It led to a massive increase in imports from Thailand but only a modest increase in Australian exports to the country.

Since the TAFTA came into effect, Australia’s trade deficit with Thailand has risen from $711 million to $3.5 billion.

The Singapore-Australia Free Trade Agreement (SAFTA) came into effect on July 28, 2003. By 2007, Australia’s trade deficit with Singapore more than doubled, rising from $3 billion in 2004 to $6.4 billion in 2007.

Australia’s trade deficit with the United States also doubled in the 10 years after Australia signed a free trade agreement with the U.S.

In relation to the China free trade agreement, Australians have reason to be sceptical of the hype emanating from senior ministers and government department officials, who have an ideological commitment to the free trade agenda, regardless of its actual effects on Australia and its people.

In assessing Australia’s FTAs, a 2008 federal Parliamentary Library paper on the issue came to the following conclusion. It said: “The potential risks of the current FTA model adopted by Australia are clear: structural trade imbalances leading to higher trade deficits favouring the FTA partner country, long phase-in periods for free trade (in particular agricultural trade), and negative impacts on the Australian economy which are related to trade diversion.”

Perhaps we should listen to the sober realism of Professor John Lee, of the Centre for International Security Studies at University of Sydney.

He wrote recently, “The significance of an Australia-China FTA is at least as much about diplomacy as it is about economics. The reality is that the Australia-China economic relationship does not really need an FTA to flourish.

“Agreements on all access in various sectors are concluded constantly without need for it to be part of a grander-sounding FTA — meaning (that) the excitement behind the likely conclusion of an agreement will exceed the actual significance of such an agreement.”

He added, “When it comes to Australian access to the services markets such as legal and financial, we are likely to receive some concessions.

“But the real barriers to entry in these Chinese markets are local ones at the regulatory and social levels, and an FTA will not reduce these barriers.

“The bottom line is that both countries want an FTA for diplomatic reasons” (The Conversation, October 6, 2014).

The real question is whether the costs to Australia of this agreement outweigh the diplomatic benefits.